An act of desperation is the best way to describe the Republican tax bill passed by the Senate. It could cost the party both houses of Congress if overly exuberant projections of job creation amid an economic boom evaporate, which seems likely. But the GOP is under pressure to prove the party in control of the House, Senate, and presidency can govern.
The Republican tax plan leans heavily on the same economic theory proven wrong long before President Ronald Reagan trotted it out in the 1980s. Humorist Will Rogers derided President Herbert Hoover's version by actually coining the term "trickle-down" economics during the Great Depression.
In a Nov. 28 commentary, Todd Carmichael, co-founder and CEO of La Colombe Coffee Roasters, explained why the GOP plan won't create jobs. "Because what every CEO knows but won't tell you is this," he said. "A tax break for their company simply means a fatter bottom line. Not jobs. Not investment. Just more money in the pockets of the folks like me."
Carmichael's observation matches an analysis of the Senate bill by the nonpartisan Joint Committee on Taxation, whose professional staff of economists, attorneys, and accountants have advised Congress on tax policy since 1926. The committee projected only a 0.6 percent increase in employment before many of the tax breaks in the bill expire in 2025, and a decline in employment afterward.
Even if the tax overhaul stimulates the economy, the committee said it will add a trillion to the national debt. That projection didn't move so-called deficit hawks like Sen. Pat Toomey, who after failing to kill Obamacare are desperate for a victory. In fact, the Senate bill includes a provision that essentially revokes the Affordable Care Act's health insurance mandate for individuals.
Wall Street cheered the bill's huge cut in the corporate income tax rate from 35 to 20 percent, which, unlike the tax breaks for families, won't expire in 2025. But the Senate bill has flaws even for businesses. For example, it ends a research and development credit that helps manufacturing, technology, and pharmaceutical companies pay scientists and engineers. That won't help create jobs.
President Trump also hinted over the weekend that the 20 percent corporate tax rate might creep up to 22 percent when the Senate bill is reconciled with the House version. That could force some companies to pay the 20 percent alternative minimum tax, which the Senate didn't kill as expected. But paying the AMT would disqualify companies for other corporate tax breaks.
Flaws and all, a final tax bill will likely be on Trump's desk to sign before Christmas. The Republicans have learned by now that the president won't hesitate to put the blame on them if they don't come through. Fearing his supporters, they would rather pass bad legislation than be accused of hampering Trump's agenda.